European Central Bank President Christine Lagarde warned today that “Europe is entering a difficult phase”, stressing that “in the short term, we will face higher inflation and slower growth”.
The longer the war in Ukraine lasts, “the higher the cost will probably be,” the ECB’s president said in a speech at an event organized by the Central Bank of Cyprus today.
“Europe needs a plan to ensure that the necessary investments are made as quickly and smoothly as possible, through a partnership of public and private funding,” he said.
Lagarde noted that Russia’s invasion of Ukraine poses significant development risks and has already caused great uncertainty in the outlook for the economy. At the same time, high energy costs, rising food prices and persistent supply chain disruptions are “expected to lead to higher inflation”.
“The best way monetary policy can handle this uncertainty is to emphasize the principles of choice, gradual change and flexibility,” he said.
“First, choice means that we are ready to react to a series of scenarios, and the course we will follow will depend on the incoming data.
More specifically, if the incoming data support the expectation that the medium-term outlook for inflation will not deteriorate even after the end of our net asset purchases, we will complete these purchases under the asset purchase program. – APP) the third quarter of the current year. However, if the medium-term outlook for inflation changes and financing conditions cease to be compatible with further progress towards our 2% target, we are ready to revise the net asset markets timetable in terms of size and / or duration.
Secondly, gradual change means that we will move carefully and adjust our policy based on the feedback we receive about our actions. Any adjustments to the key ECB interest rates will be made sometime after the end of our net purchases under the APP program and will be gradual.
And third, the flexibility “It means that we will use all the tools at our disposal to ensure the uniform transmission of our policy throughout the euro area.”
Source: Capital
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